Friday, September 10, 2004

As I discuss fiber politics with folks here in Lafayette I often hear that it doesn't matter who builds the fiber network as long as it gets built. Most of those people concede that only LUS will do so in the foreseeable future but want to make it clear that there is no in-principle reason to want our inevitable fiber network to be built as a public utility.

I, as readers might guess, think differently: a better price and universal service are excellent reasons to prefer a public utility.

But those aren't the only reasons, and they flow from what is the central reason: A public utility is, in the end, motivated by service. Not merely as a result of noble ideals, but simply because in the utility game good service at a cheap prices is what defines success. And the successful career of its personnel depends upon succeeding using that definition of success.

A private company is playing in a different game and in their game it is all about profit. Yes, we are used to understanding that a healthy respect for profit usually leads to good service and cheap prices. And when you are looking at your local grocery store that is true. They've got competition.

But it is not true when you are looking at monopolies. As we are in Lafayette. It has been argued that BellSouth and Cox are not monopolies. But they are, at least in terms of their own networks. There may be some indirect competition for the services they offer. Cell phones and satellite TV are both eating into the established companies' base. But that does not change the fact that they hold a monopoly stranglehold over their own networks and that recent FCC rulings have tightened that stranglehold. They can, and do, manage their own networks to maximize their profit. It's only logical—they serve their owners well.

The problem here is that the private providers of monopoly networks often have good reason to deny the public valuable services that would eat into their private profit.

That brings us (finally) to the story that occasioned this bit of reflection, a short piece in the Cnet broadband blog: SBC: We're fiberlicious. Really which is a good example of how this works.

All that the story really amounts to is a little bit of cynical musing about whether or not commercially provided fiber really makes the sort of difference in user experience that one would hope for. The heart of the entry:

In San Francisco's Mission Bay development, SBC also provides fiber directly to apartments. But when Jim Hu and I visited, we were surprised to find that consumers still only had the option to get Internet download speeds equivalent to DSL--for the same price as DSL. To the consumer, the fiber made no difference at all. There might be video-on-demand services, but the technology's blazing broadband potential was being virtually ignored. (emphasis mine)

The author merely notes the lack of much of a speed improvement. But we need to ask ourselves why this is true. Why should SBC throttle down the capacities of fiber? The sentence contains at least one answer—video-on-demand. Recent blogs and articles on this site have focused on the danger posed by IP networks for conventional telephony and video. (Skype, Open/closed Systems, The Road to Innovation) Both the telephone and the cable companies are banking on cable TV to pay the bills—and they should, profits are huge in that sector, contrasting dramatically with the margin in providing bandwidth for data and telephony. But that means that to protect their profit center they cannot allow download speeds to reach a level that would allow a Starz-RealNetwork or TiVo-Netflix deal to be practical. According to a graphic which accompanied only the printed version of a recent Advocate article downloading a DVD movie would take 13 days by fast dialup modem, 11 hours and 36 minutes by cable modem and 1 minute via fiber optics. 11 hours is way too long a time to tie up your internet connection; it simply won't happen. But if the download time were 1 minute (or even 10) downloading would rapidly become the preferred way to watch video.

And that scenario—where people gradually abandon the cable model in favor of ordering a la carte from a list of movies or shows would not result in the owners of the networks making a profit off selling content, they would be reduced to simply providing transport—an increasingly low-margin commodity.

For a private, profit-making corporation this will always be true. They will always find it more profitable to use their monopoly control of the network hardware to set themselves up as sole providers of content over the network they own for a simple if brutal reason: In fact it will always be more profitable to take all the profit available for a product rather than share it with anyone. A company answers first to it owners. Making the best (meaning most profitable) use of their resources is a legal obligation for any manager.

A privately-owned monopoly network will always be closed. It's just that simple.

Here some hard truths that we are having a hard time acknowledging and dealing with:

A fiber optic network, like the twisted pair phone and the coaxial networks that preceded it will always be a monopoly. Monopolies, like any profit-seeking business, will always strive to please their owners and this will always mean that private corporations will be obligated to act in the best interests of owners rather than customers. Their network will always be closed unless government forces competition on them. Throttling bandwidth to preserve the profits of cable TV is only one example.

The good, free-enterprise solution is to be an owner yourself. And that is exactly what a municipally-owned telecom utility will allow the citizens of Lafayette to be. It will be a locally—controlled, locally-owned business who will have to please its owners. The difference will be that pleasing the owners will be identical to pleasing its customers since they will be the same people. Its primary goal will be service, not profit. Such a business could, and such businesses regularly do, choose to forgo extracting the highest possible profit in favor of other values like low cost for customers or investing in ultra-reliable systems or choosing to use local providers rather than slightly lower cost outsider providers.

With a municipal utility the grounds for debating issues like how open a network would be to competing providers would be concrete and based on a simple principle: what is best for the citizen-owners. It makes sense to ask questions like the following: Would it be best to milk the huge margins of cable to secure funding for the build? Is that too risky considering the coming bandwidth/IP storm? Is there a way to build transitions between open and closed models into the network? Should we, in effect, subsidize pure communications between citizens (Data communications, Telephony) by lowering the margin on that portion and keeping it higher on entertainment (cable TV). None of these, and more that are similar, are comfortable questions. But they are real questions that can only be raised with a publicly-owned provider. No private provider will ever take such issues into account.

It matters who builds and owns the fiber network.

It isn't a simple matter of supporting anyone willing to build the local monopoly fiber network. Only a locally-owned, public utility will ever have any rational motive for caring about universal provision, low prices, expanded bandwidth at the expense of profit, and a dozen other similar issues. It's simple and painful: only if the public is the owner will we be assured that what is best for the public will be considered. It will then be up to us as citizen-owners to make sure it is. But if the provider is private we will simply never have a real right to an opinion. We will have to leave those decisions to Atlanta and knowingly concede that they will not be made with our best interests at heart.

That's hard to look at. But shorn of any soft-hearted evasions that is simply the way it is. We should want to own the fiber network monopoly so that it will be operated to our advantage and not someone else's.